Still Neutral on NY Times

We maintain our long-term Neutral recommendation on The New York Times Company (NYT). Tough economic conditions along with softness in advertising demand have been weighing upon the company’s performance. Consequently, the company is trying every means to shield itself from the impact of an unstable market and has been contemplating new revenue generating avenues. Currently, The New York Times Company carries a Zacks Rank #4 (Sell) status.

Why the Reiteration?

Advertising, which remains a significant source of revenue, is largely dependent upon the global financial health. We observe that The New York Times Company’s total advertising revenue slid 2% in the third quarter of 2013, which however, portrayed the lowest quarterly decline in 3 years. Print advertising dipped 1.6% during the quarter. Other publishing companies such as Journal Communications, Inc. (JRN), The E.W. Scripps Company (SSP) and Gannett Co. Inc. (GCI) are also encountering similar headwinds.

Advertisers are shying away from making any upfront commitments in an economy that is showing an uneven recovery.

The New York Times Company has been adding diverse revenue streams, which include a circulation pricing model and a pay-and-read model to make it less vulnerable to the economic conditions. The company is also adapting to the changing face of the multiplatform media universe, which currently includes mobile, social media networks and reader application products in its portfolio.

Despite hiccups in the economy, what still guarantees revenue generation is The New York Times Company’s pricing system for NYTimes.com, which was launched on Mar 28, 2011. The company also recently announced that mobile app users will now be able to access a maximum of three articles per day from over 25 sections, blogs and slideshows, before being asked to subscribe.

The publishing industry has long been grappling with sinking advertising revenue. This comes in the wake of a longer-term secular decline as more readers choose free online news, thereby making the print-advertising model increasingly irrelevant. To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content.

In an effort to offset the declining revenue and shrinking market share, publishers are scrambling to slash costs. The New York Times Company has been realigning its cost structure and streamlining its operations to increase efficiencies, and in turn the operating performance. The company is also offloading assets that bear no direct relation to its core operations.

The New York Times Company completed the sale of Regional Media Group in Jan 2012 to re-focus on its core newspapers and pay more attention to its online activities. The company divested its remaining stake (210 Class B units) in the Fenway Sports Group in May 2012.

The company, in Sep 2012, completed the sale of About Group and sold its stake in Indeed.com in Oct 2012. Most recently on Oct 24, 2013, it completed the sale of New England Media Group, including The Boston Globe and its allied properties to an acquisition company spearheaded by John W. Henry, who owns Fenway Sports Group, for about $70 million in cash.